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The oversupply in Kuwait’s CBD which according to various market estimates was 40% - 50% earlier declined to around 19% as of Q1-13, reported the authors of the new Kuwait real estate market outlook report from Kuwait Financial Centre K.P.S.C ‘Markaz’. They were also of the view that investment property prices (apartments sub-segment) would continue to witness moderate levels of growth over 2013 & 14.

Investment properties (Apartments): The report notes that the apartments segment remained marginally undersupplied, evident from low vacancy rate that are below 6%. The report also studies the prospects for the apartment segment from economic trends and the trends in supply. Demand for this segment is forecasted to grow by approximately 4% p.a. over 2013 & 14 driven by a 2.5% - 3% annual growth in expat population. Supply grew at approximately 3.4% per annum in the past and is expected to grow at a similar rate over 2013 & 14. As incremental demand trends are expected to be higher than supply over the near term, the market is forecasted to remain marginally undersupplied over 2013 & 14 as well. The report forecasts rents to grow at 3%-4% p.a. over 2013 & 14 , broadly reflecting overall inflation levels. Cap rates contracted up until Q1-13, as the segment remained a preferred investment asset class and due to the undersupplied nature of the market. The authors of the report do not see any major catalysts as of now triggering a trend reversal and forecast cap rates to remain stable over 2013 & 14 and forecast prices to move in line with rentals and grow by approximately 4% p.a over the forecast period.

CBD office market: The authors conducted a detailed survey on the Kuwait CBD office market and estimated the occupied office space as of Q1-13 at c.943,000 sqm. The survey also revealed that the total supply of Class –A, B & C category office space stood at 1.17 Mn sqm as of Q1-13, with bulk of the supply over the near term to be of the Class-A category. Vacant office space stood at approximately 227,000 sqm. This results in a vacancy rate of 19%, as against the 40%-50% levels reported by various sources earlier. The authors noted that the improvement in take up was driven by three sources of demand, 1) organic demand from private sector, 2) demand from government organizations renting private sector office space and 3) demand from tenants upgrading to better quality office spaces. On the future trends of demand and supply, the authors forecast the demand to average 54,000 sqm p.a. over 2013-14 and noted that 176,000 sqm of office space is currently under construction, of which 120,000 sqm would be added to the market during 2013-14. The report noted that vacancy rates would stabilize and start declining from 2015 as incremental supply gets lower than demand, driving growth in rentals and prices from thereon.

Mall space retail: The authors observed that demand for retail spaces had improved from better retail sector demand witnessed as indicators like consumer spending had exhibited positive trends since the global financial crisis. The study estimated that mall space in Kuwait reached approximately 550,500 sq.m as of 2012 after the completion of the Phase-III of the Avenues mall. 2014 mall space per capita in Kuwait would continue to be the lowest in the GCC despite supply increasing by 8.7% CAGR over 2013 & 14. Rents are expected to sustain and move higher by 3%-4% per annum during the period.

Liquidity & Transactions: The report highlighted that the credit lending situation to the real estate & construction sector would continue to remain buoyant over 2013 & 14 as the overall banking system remains strong & well capitalized. This should continue to drive the improvement in transactions over 2013 & 14, after improving at a CAGR of 20% over 2009-12.

About Kuwait Financial Centre “Markaz”

Kuwait Financial Centre K.P.S.C “Markaz”, with total assets under management of over KD 982.6 million (USD 3.45 billion) as of June 30, 2013, was established in 1974 has become one of the leading asset management and investment banking institutions in the Arabian Gulf Region. Markaz was listed on the Kuwait Stock Exchange (KSE) in 1997.